In the midst of the Coronavirus pandemic which shut down the entire sectors of the economy and putting millions of Nigerians out of work, renewed interest in the Nigerian equities market spurred bargain hunting in the third quarter (Q3) of the year, as investors’ investment went up by N1.255trillion.
The lockdown ordered by the federal government to curtail the spread of the pandemic from March 30, 2020, had crippled business activities, with more adverse effects on most private organizations which laid-off workers, while few that remained had their staff salaries slashed.
But the key performance indicator of the Nigerian Stock Exchange (NSE), the All Share Index (ASI), went up by 9.61 per cent to close at 26,831.76 points on September 30, 2020, from 24,479.22 points at which it opened trading on July 1, 2020.
Similarly, market capitalisation for the period gained by N1.255 trillion to N14.025 trillion from N12.770 trillion.
Performance across the major sectoral indices was positive during the period as of September 25, 2020, with the NSE Pension index leading with 8.67 per cent gain.
NSE Premium index followed with a gain of 8.39 per cent, while NSE Banking index up by 7.28 per cent.
NSE 30, Industrial Goods, Insurance, Consumer Goods and Lotus II indices closed Q3 in a positive territory with a gain of 6.79 per cent, 5.22 per cent, 4.52 per cent, 3.84 per cent and 3.42 per cent, respectively.
On the other hand, NSE Oil and Gas in the period under review declined by 2.28 per cent.
Trading activities on the market in Q3 was impressive as the market showed a rebound from COVID-19 pandemic. The three months in the quarter, July, August September closed positive.
Capital market analysts are of the view that the market witnessed return of foreign portfolio investors and institutional investors back during the period under review as bargain hunting persisted amidst earnings reporting season, monetary easing and drop in fixed income yield.
They pointed out that the negative returns on other investment windows propelled the flow of funds into equity assets, especially against the backdrop of the untamed inflationary pressures, especially the last two weeks of the quarter.
The Monetary Policy Committee (MPC) at the end of its meeting on Tuesday, September 22, 2020, voted to reduce the Monetary Policy Rate (MPR) by 100bps to 11.50 per cent despite the rising inflation rate which rose to 13.22 per cent in August 2020.
Also, it adjusted the asymmetric corridor from +200 bps and -500 bps to +100 bps and -700 bps around the MPR.
Analysts said the recent decision by the MPC, alongside the expected sizable inflows into the financial system in four quarter (Q4), 2020, suggests that the low yield environment in the fixed income market will persist.
“Clearly, this makes the investment case for equities increasingly compelling notwithstanding the rising country risk premium. As such, we expect to see a continuous flow of funds into the equities markets, especially from local investors”, they stated.
Analysts at United Capital Plc said the equity market sustained its bullish trend as unattractive yield environment coupled with buoyant liquidity in the financial system as well as some positive H1, 2020 earnings publication spurred locals demand for equity.
The CEO, Enterprise Stockbrokers Plc, Rotimi Fakayejo, said equities market performance in Q3 of 2020 was above expectation, stressing that stakeholders in the equities market had written off the market this year.
According to him, the performance of the equities market is above expectation as everybody was expecting negative performance with the way the economy was before the lockdown and post-lockdown of COVID-19.
“The issue of repatriation of foreign exchange makes investment in the equities market. The reform in the foreign exchange market contributed to investors staying away from the equities market. The half-year results by listed banks, others revived the equities market this year,” he added.
Speaking on roles of policymakers in the equities market performance, he said, “The fundamentals of listed companies have sustained the positive performance of the market in nine months.
“The local investors and High Network Investors to a greater extent drive the equities market. Although the volume and value have reduced, the market has been very steady.”
He further projected that the equities market would close positive this year.
In his response, the vice president, Highcap Securities Limited, Mr David Adnori, stated that the equities market started poorly at the beginning of the year but recovered relatively at a point in the year.
He said the equities market gained as a result of the fiscal, monetary policies of the federal government and the Central Bank of Nigeria.
According to him, the CBN is embarking on Expansionary Monetary Policy, leading to investors surge interest in the equities market, while the federal government at the same time is implementing a palliative programme called Nigerian Energy Support Programme (NESP).
He said the N2.3trillion NESP has reflected in the economy, translating into the equities market recovery in nine months.
“Unfortunately, the economy does not have enough absorptive capacity so a lot of that money is flowing into the equities market and foreign exchange market. That is why the equities market is propelling the growth of equities and that is the major reason,” he said.